The tide has finally turned in US marine insurance.
For the first time in John Ellis’s three decade-long career in marine insurance, the market is hard. There have been a few short blips when conditions tightened – in the early 80s when he joined the industry, and in the period following 9/11 – but for most of Ellis’s 30+ years in marine insurance, the market has remained perpetually soft.
That was the state of play when Ellis launched a marine insurance operation for Canopius USA in 2016.
“When we started in 2016, the market was super soft, so it was really difficult as a start-up to go out there and sell ourselves,” he said. “Luckily, we had some good support from existing producers who were willing to give us a shot and support us. Despite the market conditions, we were able to launch ourselves and get to a critical mass in a very soft market.
“Then the market turned about two-years-ago, and it’s been super beneficial. As Canopius, we could not be positioned better in this new world. Everybody is benefiting from the new reality [and hardening conditions] of marine insurance, but I think Canopius is benefitting more than most because of the tools that we have in our toolbox that others don’t have.”
There are multiple factors behind the hardening of the marine insurance market. The line has been underperforming for many years, due partly to inadequate rating for a sustained period of time. However, nothing significant was done about this until 2018, when Lloyd’s launched its ‘Decile 10’ initiative, aimed at bringing underperforming syndicates and classes of business, including marine insurance, back to profitability. Failure to do so would result in plans being rejected and classes of business and syndicates being closed down. This led to a market correction in marine insurance, which is ongoing.
At the same time, the market has “lost its luster” in the eyes of capital providers after years of bad results, according to Ellis, who is head of ocean marine at Canopius USA. This has put more pressure on the marine underwriting community to produce an underwriting profit as the tolerance for underperformance has diminished. Many carriers have been unable to turn their books around and have therefore pulled out of the market. Those that remain have increased rates and tightened up their risk selection and underwriting.
“There is a sustained effort on the part of the respected carriers - the carriers who have been consistently at the top of the food chain with profitability and have reasonably sizable books – where they’re taking on measures to correct what they perceive to be inadequacies, whether it be rating, or the coverage terms and conditions being too broad,” said Ellis. “That’s further hardening of the market because the respected markets are the ones who put out the big leads, and the brokers try to get them on their slips, so that momentum will continue. That was happening for most of 2021, and I don’t see there being any let up in 2022.”
Moving forward, data and analytics will play an increasingly important role in marine risk selection and underwriting, according to Ellis, who said that as the pricing game becomes more reliant on actual data, it is becoming harder for underwriters to explain away underperformance.
“Marine insurers have been collecting data for years, but we’ve generally done a poor job of mining it,” Ellis told Insurance Business. “We’ve got 50 years of marine data and it’s virtually useless at this point because we’ve never set up the tools to really figure out what data to extract to make it useful in our rating tools. But now we’re getting much better at that. And what we’re doing at Canopius, similar to our peers in the marketplace, is we’re getting actuaries much more involved in the rating process.
“In the past, it was all based on experience rating. But investors today don’t want to hear that anymore. They want to hear some sustainable and provable results being driven by data that tells you: ‘Yes, we can have an expectation of this result if you charge these rates against this book of business.’ If capital is going to come into the marine space, they’re going to want to see some tangible basis from which we’re rating the product that we’re offering.”
